SPREADING WINGS - IndiGo to start international flights from Aug

Budget carrier IndiGo, which recently placed a record order for planes, will start international operations in August, pitting it against Emirates, Singapore Airlines Ltd and AirAsia Bhd.

The aviation ministry has approved IndiGo's proposal to fly to four countries, joining Indian carriers Air India, Jet Lite (India) Ltd, Jet Airways (India) Ltd, Kingfisher Airlines Ltd and SpiceJet Ltd, in a market that's growing at around 10% annually.

The Gurgaon-based carrier, run by InterGlobe General Aviation Pvt. Ltd, has been cleared to operate daily flights to Bangkok, Singapore and Dubai from New Delhi and Mumbai, besides connecting Muscat with Mumbai, all considered to be high-traffic routes. The aviation ministry cleared the four month old proposal late last week. IndiGo's proposal to fly to several other overseas destination starting from November is still to be cleared.

On 12 January, the airline announced a record order for 180 Airbus SAS A320 jets in Toulouse worth $15 billion (68,000 crore) at list prices.

“As IndiGo turns five in August 2011, this approval dovetails well into its planning process. This will hasten the process of Indian carriers taking back some of the market share that has been lost over the past many decades to foreign carriers,“ the airline said in a statement.

Of the 241 A320s it has on order till 2025, including 61 from a previous order, 14 will join its fleet this year, helping it expand its domestic presence and run flights to neighbouring destinations to optimize aircraft utilization. IndiGo uses 34 A320s on 221 daily domestic flights. Government rules mandate five years of domestic experience and a 20 aircraft fleet before a domestic carrier can fly overseas.

The entry of another low- cost carrier may benefit passengers as fares are likely to fall on many of these sectors. “I think there would be good downward pressure,“ said G.R.
Gopinath, who pioneered low cost airlines in India with Air Deccan, later acquired by Kingfisher Airlines. “It's good for everybody, especially the consumers.“

Another travel industry official said the decline in ticket prices will depend on IndiGo's strategy to woo the market. “The problem is that a fare war is already happening on these sectors. You can fly to Dubai for 5,000 on Air Arabia. I am sure they will match whatever is the lowest fare,“ said Aloke Bajpai, head of travel website IxiGo.com. “Unless IndiGo comes up with a completely radical strategy of pricing it below that.“

Bajpai said the routes IndiGo has selected were “predictable“ as they see heavy traffic and are profitable. The top 10 international routes by number of daily travellers from India are Mumbai-Dubai, Delhi-London, Mumbai-London, Chennai-Colombo, Chennai-Singapore, Delhi- Dubai, Delhi-Kathmandu, Delhi-Bangkok, Chennai-Dubai and Mumbai-Singapore, ac- cording to a Kingfisher Airlines investor presentation.

“This continues the trend of Indian carriers deploying capacity away from the highly competitive and lower yield domestic market,“ said Vikram Krishnan, an analyst with US- based aviation consultancy Oliver Wyman. “These airlines would have to develop a brand presence and cultivate agency distribution channels at the international points of sale. Emirates and Qatar are selling a global network behind Dubai or Doha, while IndiGo will rely more on point-to-point traffic terminating in Dubai or Singapore.“

UID to serve as proof for telecom connections

The department of telecommunications (DoT) has decided to allow the use of unique identification (UID) numbers, which will be issued to all residents of India under the government's Aadhaar project, as proof of identity and address for obtaining telephone connections.

The move will make it easier for millions of people, particularly in the the insurgency-hit states of the North-East and Jammu and Kashmir, to get new phone numbers. It will also help telecom companies save time and expense.

DoT's decision comes a month after the finance ministry said UID was sufficient to meet the know your customer norms, under which banks are expected to verify customers before opening bank accounts or conducting any financial transaction.

“The Aadhaar shall be taken as valid proof of identity (PoI) and proof of address (PoA) after details of identity and address are confirmed through Aadhaar authentication procedure,“ said a DoT notice issued on 14 January. “After implementation of the Aadhaar authentication procedure, it can be used as valid PoI and PoA in Jammu & Kashmir, Assam and north-east service areas also.“

Rajan Mathews, director general of industry lobby group Cellular Operators Association of India, said this will help telcos cut cost substantially. “It removes the need for warehouses to store the millions of customer verification forms or spend time and money scanning and uploading these forms or physical verification (needed in the North- East and Jammu and Kash- mir),“ he said. “If today an operator spends 750-1,000 per subscriber verification, the cost comes down to 150-200 per subscriber. That is immense, given the hundreds of millions of mo- bile phone subscribers in the country.“

India added 18.98 million subscribers in October, taking the total to 742.12 million, according to the telecom regulator.

Retail vendors of phone connections are likely to be provided biometric reading devices that could directly send an appli- cant's UID number and biometric data to the Aadhaar central database for online authentication.

Such devices cost around 10,000, but large-scale use could reduce their prices and make them affordable even for small retailers.

“The cost savings from man power, and time among other resources would be immense,“ said an executive at telecom company Bharti Airtel Ltd, asking not to be identified.

The UID authority plans to issue UIDs to around 600 million people by 2014 by collecting basic demographic data and biometric information such as fingerprints and iris scans. By March 2011, around 100 million Indians will have UID, if the authority meets its targets.

Neel Ratan, executive director of consultancy firm PricewaterhouseCoopers Pvt. Ltd, said the security benefits of the move are moderate at this stage. “But it is important to build a critical mass so that the end- user can be traced,“ he said. “The more ubiquitous UID becomes, the stronger it will be.“

SUSTAINING MARGINS - TCS profit rises 30% to 2,369 cr

Tata Consultancy Services Ltd (TCS), India's largest information technology company, carrying over volume growth and high operating mar- gins from the previous quarter, beat estimates by posting a net profit of 2,369 crore for the quarter ended December, up 9.3% quarter-on-quarter, and 30% year-on-year (y-o-y).

That exceeded estimates of 2,200 crore. Revenue rose to 9,663 crore, up 4.1 % sequentially and 26.3% y-o-y. It declared a quarterly dividend of 2 per share, and earnings per share of 12.08. In dollar terms, revenue rose 7% to $2.14 billion (9,758 crore today), while profit came in at $517 million, up 14% sequentially and 35% y-o-y.

“They have beaten our expectations,“ said Dipen Shah, senior vice-president at Kotak Securities Ltd. “In a seasonally weak quarter, the volume growth of 5.7 % is encouraging and the improvement in operating margins is a positive surprise.“

The gap between TCS and its peers is widening, said Abhishek Shindadkar, an analyst at ICICI Securities Ltd. “Clearly, they have done a better job of managing headwinds. They look a really cohesive unit, reinvigorated under Chandra (chief executive officer and managing director N.Chandrasekaran).“

Infosys Technologies Ltd turned in low single-digit sequential growth in revenue (2.29%) and net profit (2.5 %), at 7,106 crore and 1,780 crore, respectively, for the quarter.

Srishti Anand, analyst at Angel Broking Ltd, said she had expected volume growth at 7%, but TCS “overperformed our expectations on margin and PAT (prof- it after tax). A 52 crore forex gain this quarter vis-a-vis a forex loss last quarter helped in a stronger PAT“.

Chandrasekaran said a “sharp focus on strategy, with rigorous execution discipline, has helped capture volumes, defend margins and deliver another stellar quarter. Demand environment continues to be strong.“

Chief financial officer S. Mahalingam said pricing and productivity were improving. “We continue to live with currency volatility, but we leveraged strong cost management efforts to sustain margins,“ he said.

TCS rose 1.57% to 1,136.30 on the Bombay Stock Exchange on Monday. Results were announced after the market closed.

Volume growth at 5.7% is in contrast with the 11% seen in the last quarter, while operating margins continued to see the highs of Q2 at 28%. In the quarter, 35 new clients were added.

“Keeping in mind that TCS is the leader of the pack, we expect Wipro too to disappoint on the volume front,“ Anand of Angel Broking said. Wipro is to announce results later this week.

TCS added a record 20,219 staffers, a net addition of 12,497, for a total strength of 186,914 as of 31 December. Attrition was marginally up to 14.4% from 14.1% in the previous quarter.

The company said that growth was led by developed markets in the US and Europe, while Asia- Pacific, West Asia and Africa were also growing. Last quarter, North American revenue alone crossed $1 billion and the company posted double-digit growth across verticals. Net profit had risen by 14% sequentially, and 32% y-o-y. Europe and the UK continued to show growth, Chandrasekaran said. Offshore revenue rose 30 basis points to 51.4%.

Key wins for the quarter included firms in telecom, pharma and healthcare, banking, and airlines. New services such as assurance and infrastructure services were showing good growth, the company said.

ADAG group stocks tank on Sebi order

Reliance (ADA) group stocks witnessed heavy selling pressure on Monday with all the group stocks down about 5% or more despite the damage-control exercise over the weekend to soothe investor fears related to the Sebi order on Friday.

A host of analysts have come out with cautious to negative reports on Reliance Infrastructure (R-Infra), mainly highlighting their concerns about the investment management practices of the company.

On Monday, among the leading companies from the group, while the R-Infra stock closed 7.8% off at Rs 736, Reliance Capital lost 6.5% to Rs 574, Reliance Communications lost 4.8% to Rs 132 and Reliance Power 6.1% to Rs 138. Among others, Reliance Mediaworks was down 8.5% to Rs 182, while Reliance Broadcast was off 6.2% at Rs 73.

The losses came on the back of market regulator Sebi's consent order on Friday that said  ADAG chairman Anil Ambani will not be allowed to invest in shares of listed companies during 2011, while two of his group companies, Reliance Infrastructure and Reliance Natural Resources (RNRL), which has since been merged with Reliance Power, will face similar restrictions on investments till 2012. Sebi had also imposed bars on investments till December 2011 on other directors of R-Infra-Satish Seth, S C Gupta, Lalit Jalan and J P Chalasani. The order relates to Sebi's investigations about ADA group companies investing funds raised through ECB and FCCB in the domestic stock market, which is not allowed under the current rules.

Sebi, through this consent order which was voluntarily proposed by ADA group companies, said that the companies and the directors have already paid a settlement charge of Rs 50 crore On Sunday, in a press meet Ambani said that the Sebi ban on the two companies and himself were self-imposed, and added that the order was grossly misrepresented.

In a report on R-Infra, Kotak Institutional Equities noted that deployment of cash and equivalents has been a contentious issue with R-Infra, with its liquid balance sheet comprising Rs 10,300 crore of cash (and equivalents) at the consolidated level. "The bone of contention has been the deployment of funds in inter-corporate deposits (Rs 2,770 crore) and redeemable preference shares (Rs 3,500 crore). We note that of the Rs 7,200 crore raised by R-Infra over the past four years through equity issuance (Rs 4,700 crore), NCDs (Rs 850 crore) and ECBs (Rs 1,600 crore), substantial funds remain deployed in contentious investments such as inter-corporate deposits (ICDs) and redeemable preference shares,'' the report by Murtuza Arsiwalla and Shubham Satyarth noted.

"The current consent order still leaves questions on utilization of the cash unanswered; only suggesting that prima-facie investigations suggest misrepresentation of investments in the annual report,'' the analysts added. However, Kotak retained its target price on the stock at Rs 1,060 but said it would revisit the `cautious' rating and target price once better clarity emerges on end-utilisation of funds.

Analysts at foreign broking house JP Morgan downgraded R-Infra to "neutral" from "overweight" and revised its price target drastically to Rs 950 from Rs 1,360. The downgrade was done mainly because of the absence of catalysts for higher valuation of the stock. On the Sebi order, JP Morgan analysts said that the regulator's findings do not "speak well of the company's investment practices.''

Among other domestic fund houses, Religare, which has a "buy" rating on the R-Infra stock with a target price of Rs 1,390, said that the Sebi order does not restrain the companies from selling their investments. "While this consent order takes away a long standing overhang, we don't think that the stock will outperform, unless transparency level on balance sheet items improve,'' the Religare analysts noted.

Ethiopian Assefa wins Mumbai Marathon

Ethiopians Girma Assefa and Koren Yal led a near clean-sweep of the men's and women's top three positions in the $325,000 eighth Standard Chartered Mumbai Marathon here today besides spearheading a successful assault on the course records in both events.

24-year-old Assefa from Addis Ababa took the men's honours and also led a 1-2 sweep for the African nation known for its long distance runners by finishing the 42.195-km course from Chatrapati Shivaji Terminus in south Mumbai to suburban Bandra and back in a new mark of 2 hours, 9 minutes and 54 seconds.

His compatriot Botor Segaye Wolde came in second in a tight finish in 2:09:57s, while Kenya's Patrick Muriuki secured the third position with a timing of 2:10:00s. All three dipped under the two-year course record of 2:11:51 set by Kenyan Kenneth Mungara.

Delhi Commonwealth Games champion and two-time winner John Kelai belied pre-race expectations and finished a poor sixth in 2:11:05s, also under the old course record, in cool weather conditions that helped the runners.

The Indian Armymen's trio of Bining Lyngkhoi, Angad Kumar and Ram Singh Yadav swept the top three spots for the home country. Last year's top finisher Bining Lyngkhoi repeated the feat in a slow 2:21:16s, well off Ram Singh Yadav's course best of 2:18:03s set in 2009.

Angad Kumar was second in 2:24:32s and their Army Sports Institute teammate Yadav, who has recovered from a hamstring injury, was still good enough to finish third in 2:25:33s. The trio's timings were well off the London Olympic Games qualifying mark of 2:18 set by the Athletics Federation of India, which has not notified the Mumbai Marathon this year as part of its designated qualifying races.

"The weather conditions were good. The pace setters did a good job," said Assefa, who also went under his previous personal best time of 2:09:58s set in Berlin two years ago. Today, he had run only his fourth marathon and the victory made him richer by $36,000.

In the women's category, 24-year-old Yal led an all Ethiopian top-three finish to complete the race in 2:26:56, breaking the course record set by countrywoman Mulu Seboka in 2008 and pick up the winner's prize of $36,000.

Merima Mohammed was second clocking 2:29:04s, while Elfemesh Alemu finished third with a timing of 2:30:04s.

"The weather conditions were good though it became a bit hot later on. It was windy too which was helpful," said Yal, who idolises her countryman and legendary runner Haile Gebrselassie.

The men's race was a close one among a bunch of 15 runners. Kenya's Simon Kasimili set the early pace and led after the six-km stretch, which he retained after 10kms at Haji Ali.

However, at the half-way stage, his compatriot Kipkemei Mutai surged ahead only to be overtaken by Muriuki at the end of the iconic Rajiv Gandhi Bandra-Worli sea-link.

After the end of the 32-km mark, it was Wolde who ran into contention, but Assefa saved enough fuel in his tank to move ahead when it mattered most to clinch the title.

The top finisher among Indian men, Meghalaya-born Lyngkhoi, who won $6,000, was candid to say that despite the favourable weather and better organisation of the event, the home country athletes did not return good times.

"The organisation was much better this time than last year and water was available in plentiful. The weather was also good, but our timings were not good. I can't explain the reason," he said.

He was referring to the absence of water in spots designated for providing to the runners in last year's event.

Lyngkhoi said he would try to attain the Olympics qualifying mark in future races.

Angad, however, had the satisfaction of improving his position from fifth in 2010 to second this year, while Yadav was happy he could finish third despite having coming into the race after recovering from a hamstring injury just 10 days ago.

"I am happy to finish third as I had a hamstring injury 10-15 days ago. I would perform better next year," said Yadav, who ran his third marathon in four months, following his participation in the Delhi CWG in October and the Asian Games in Guangzhou in November.

In the half marathon for Indian men, BC Tilak of ASI, Pune won the title in 1:04:45s and was followed in second and third spots by Soji Mathew (Railways, 1:05:04s) and Kheta Ram (ASI, 1:05:32s).

In the corresponding women's event, Railways runners Priyanka Singh Patel (1:22:34s) and Sangeeta Yadav (1:23:45s) swept the top two positions, while Maharashtra's Jayashree Borge finished third in 1:24:43s.

Vibrant Gujarat summit: Anil Ambani praises brother Mukesh

A thaw between the warring Ambani brothers might be in sight. Mukesh and Anil Ambani not only shared the stage at the inaugural function of the Vibrant Gujarat Summit on Wednesday, but the younger brother even reached out to Mukesh.

Addressing the gathering, Anil described Mukesh as one of the greatest wealth creators in India along with Ratan Tata.

This is the first time that the Ambani brothers came together at a public platform after L.K. Advani's meet of industrialists. It is also the first time that the Ambani brothers are sharing the same platform as Ratan Tata.

Anil also hailed Gujarat Chief Minister Narendra Modi's role in reversing climate change. In the past, Anil Ambani and Sunil Mittal had praised Modi at the meet.

The two top industrialists had praised Modi's leadership skills at the Vibrant Gujarat Summit in 2009 and even called him a "prime ministerial candidate".

For more information about Vibrant Gujarat 2011 summit please click here.

Management changes at 3 Tata group firms

The Tata group on Thursday announced top-tier management changes at three of its listed firms, Tata Power Co. Ltd, Tata Communications Ltd and Tata Teleservices (Maharashtra) Ltd (TTML), effective 1 February.

Tata Power managing director Prasad Menon's impending retirement on 31 January necessitated the changes.

Anil Sardana, who is currently managing director of Tata Teleservices and TTML, will replace Menon, while N. Srinath, managing director and chief executive officer of Tata Communications, will replace Sardana.

“Srinath will continue to be a non-executive director on the board of Tata Communications and some of its subsidiary/associate companies such as Neotel,“ the company said in a media release.

Vinod Kumar, who is president and chief operating officer of Tata Communications and managing director of Tata Communications International, will take up Srinath's current post.

The changes are typical of the $62.5 billion (2.8 trillion) group's succession planning.

Menon had worked as managing director of Tata Chemicals Ltd for six years before taking over at Tata Power in October 2006. He joined Tata Chemicals from Hyderabad-based Nagarjuna Group. “The Tata Group will make space for him in some capacity for sure, but right now it is unclear,“ said a company spokesperson.

Sardana, who replaces Menon, started with Tata Power in 2002 from the erstwhile BSES to lead the company's distribution business as chief executive and later as managing director. He became executive director at Tata Power before taking over at Tata Teleservices three years ago.

Srinath has been with the group since joining the Tata Administrative Services in 1986 as a probationer. He started as a project executive in Tata Honeywell from 1987 to 1988, working on getting approvals and project funding. Tata Honeywell was then a joint venture between the Tatas and Honeywell, with manufacturing, design and engineering facilities in Pune. The joint venture ended in 2004.

Mumbai airport upgrade may cost a further 350-400 crore

Modernizing Mumbai's airport may cost a further 350-400 crore in addition to the earlier estimated 9,800 crore, two officials familiar with the matter said.

“The increase is likely to be because of road construction, a new air traffic control (ATC) tower, which has to be relocated, and work on the Mithi river, which the state government wants,“ a government official said, requesting anonymity.

This could mean passengers paying more for travel as a significant part of such costs at airports have been passed on to them as development charges in the past two years.
The latest escalation in costs would be the third for the airport since it was privatized in 2006. The facility is operated by Mumbai International Airport Pvt. Ltd (Mial), a GVK Infra- structure and Power Ltd-led consortium.

It's not clear if there will be any more cost increases owing to the modernization, said the official cited above. The development was confirmed by a second government official.

Mial denied there would be any escalation. “The project cost, as of now, is 9,800 crore,“ said a Mial spokesperson. “If there is a change, we will report it to the board.“

The cost increase has come to light following an aviation ministry directive that asked private airport operators to report any escalation immediately.

The order was issued to avoid surprise cost escalations such as that for Delhi International Airport Ltd (DIAL), that jumped from an estimated 5,800 crore project cost to 12,700 crore in March last year.

Soon after that, DIAL sought an extension of the passenger levy beyond 1 March 2012, the current date till which the airport regulator has allowed it to charge such fees.

Passengers are being charged to help the developer recover 1,827 crore, or 20% of the earlier project estimate of 8,975 crore. They have to pay 200 for local travel and 1,300 for fly- ing overseas.

Passengers are paying 1,543 crore of the Mumbai airport's modernization cost by shelling out an airport development fee on fares since 2009. The airport charges 100 per domestic passenger and 600 for international travel.

“Escalations are for many reasons,“ said Amrit Pandurangi, senior director at consulting firm Deloitte Touche Tohmatsu Pvt. Ltd. “At least in the road projects the cost overruns are much less for private players compared with government projects. It's difficult to make comparisons in the airport sector because there are not enough examples.“ The expansion programme is scheduled to end in 2012.

Meanwhile, the Navi Mumbai airport project, which has just received environmental clearance, is set for a 2016 start, according to the Maharashtra state government. The new facility is being set up as the current Mumbai airport can't be expanded beyond a 40 million annual passenger capacity. The airport has had a freeze on new flight slots since last year.

Aviation Ministry: Located at Rajiv Gandhi Bhavan at the Safdarjung Airport in New Delhi, the Ministry of Civil Aviation is responsible for formulation of national policies and programs for the development and regulation of the Civil Aviation sector in the country. It is responsible for the administration of the Aircraft Act, 1934, Aircraft Rules, 1937 and various other legislations pertaining to the aviation sector in the country. This Ministry exercises administrative control over attached and autonomous organizations like the Directorate General of Civil Aviation, Bureau of Civil Aviation Security and Indira Gandhi Rashtriya Udan Academy and affiliated Public Sector Undertakings like National Aviation Company of India Limited, Airports Authority of India and Pawan Hans Helicopters Limited. The Commission of Railway Safety, which is responsible for safety in rail travel and operations in terms of the provisions of the Railways Act, 1989 also comes under the administrative control of this Ministry.

SKS to provide small loans at 24.55%

Hyderabad based SKS Microfinance Ltd on Tuesday said it was reducing interest rates and will charge 24.55% per annum from all categories of small borrowers.

“The company will not collect charges towards credit shield charge, loan processing fee, and card fee with effect from 11 January. With this, all effective interest rate across country will be 24.55% for all future disbursements,“ it said in a filing to the stock exchanges.

SKS Microfinance, which has been in the news for sacking its managing director and chief executive Suresh Gurumani and for allegedly using coercive methods for loan recovery earlier charge 2831% interest from small borrowers.

Microfinance Definition: A type of banking service that is provided to unemployed or low-income individuals or groups who would otherwise have no other means of gaining financial services. Ultimately, the goal of microfinance is to give low income people an opportunity to become self-sufficient by providing a means of saving money, borrowing money and insurance.

Sebi allows F&O trade on foreign indices

The Securities and Exchange Board of India (Sebi) on Tuesday said it has permitted domestic stock exchanges to offer trading in futures and options (F&Os) contracts on foreign stock indices in the equity derivatives segment.

The instruments shall be denominated in the Indian rupee, markets regulator said in a circular.

Futures Contract Definition: A contractual agreement, generally made on the trading floor of a futures exchange, to buy or sell a particular commodity or financial instrument at a pre-determined price in the future. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in cash. 

Options Contract Definition: A financial derivative that represents a contract sold by one party (option writer) to another party (option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date). Call options give the option to buy at certain price, so the buyer would want the stock to go up. Put options give the option to sell at a certain price, so the buyer would want the stock to go down.

iGate seals Patni deal at $1.22 billion

Nasdaq-listed iGate Corp announced that it, along with its partner, would acquire a majority stake in Mumbai- headquartered information technology (IT) services company Patni Computer Systems Ltd for around $1.22 billion (around 5,540 crore) in a deal that gives the former scale in the IT services business and ends uncertainty about the future of the latter, one of India's oldest IT services companies, but also one which has been in the news as a possible target for acquisition for at least four years.

The acquisition is among the biggest involving an Indian IT company. In 2006, EDS Corp. acquired Mphasis BFL Ltd for 1,748 crore. And in 2005, Oracle Corp. acquired i-flex Solutions Ltd for 4,090 crore.

iGate chief executive Phaneesh Murthy said the consortium of iGate and private equity (PE) firm Apax Partners Llc has signed definitive agreements with the three founders of Patni--Narendra Patni, Gajendra Patni and Ashok Patni-- to acquire their 45.6% stake, and with PE firm General Atlantic Llc for its 17.4% stake.

While there was much speculation about a “non-compete fee“ that would be paid to the Patnis to ensure they didn't start another IT services com- pany, Murthy said no such fee has been paid. “The whole idea of such a deal is to go out there and compete,“ he said.

“This is an extremely strategic move, giving us a much larger platform, access to much larger deals and more verticals to go after,“ he added.

“Consolidation is the way to go for midsize companies,“ said Milan Sheth, partner (advisory services) at audit and consulting firm Ernst and Young.

iGate reported revenue of $252 million and net profit of $45 million for the 12 months ended 30 September, while Patni reported revenue of $689 million and net profit of $134 million for the same period.

Patni has roughly two employees for every one iGate has and the combined strength of the two will be around 25,000 employees. And while iGate has 82 customers, seven deliv- ery centres and offices in 16 countries, Patni has 282 customers, 22 global delivery cen- tres and offices in 30 locations.

The acquisition price is 503.50 a share (the company's shares closed at 463.85 on Monday), amounting to a total of $921 million. In keeping with Indian law, iGate will make, through subsidiaries, an open offer to shareholders of Patni to buy an additional 20% in the company at the same price. Assuming it does so, it will spend an additional $301 million.

Murthy said that the transaction will be completed in the first half of 2011, and will become “cash accretive“ by 2012, on a cash earnings per share basis.

To finance the deal, iGate, which hitherto did not have debt on its books, will be taking on a debt of $700 million. Another $100 million will come from cash on its books. For the remaining, iGate has agreed to sell to Viscaria Pty Ltd, a company backed by funds advised by Apax Partners, $270 million of preferred stock convertible into common stock. The preferred stock investment by Viscaria may be increased by up to an additional $210 million based on the subscription in the open offer process and in the event that the company does not go ahead with a public offering.

For the debt component of $700 million, commitments have been secured from RBC Capital Markets and Jefferies and Co. Inc., Murthy said. RBC Capital is part of a leading pro- vider of financial services, Royal Bank of Canada.

Jan Erik Aase, principal analyst at Forrester Research Inc., said that the combination of Patni and iGate is synergistic, and the sum of the two will be greater than the current strength of each.

Few customers would desert either company on account of the merger, he added, explaining that it isn't easy to change vendors for application development and maintenance, the main service rendered by Indi- an IT services firms to their customers.

Patni will continue to be listed in India as a separate entity well into 2011, Murthy said.


“Do I want to continue with two separate listings for ever?
Obviously not. We'll take the call on a merger into a single entity when the time comes,“ he added.

Nitin Padmanabhan of Indiabulls Securities Ltd said that while the price offer at 503.50 per share is a fair valuation at a 12 times the estimated earnings of Patni in 2012, “there is no precedent to such a deal where a company acquires a company 2.5 times its size“.
“Investors would like to wait and watch as to how the integration takes place once the acquisition is consummated,“ he added.

Murthy agreed that integration could pose some challenges. “The leadership will work on that. But we believe that we will have the support of 25,000 employees in doing the work of integration,“ he said.

The merger could result in a more competitive entity, said another analyst. “When a com- pany does not have the width of verticals, then it is restricted in terms of growth. Hence, Patni was unable to take on bigger deals or huge orders. With the acquisition, there should be scope for cross selling and improvement in margins,“ said Probir Rao, managing director and head of investment banking and capital markets (India) at Jefferies India Pvt. Ltd.

Acquisition Definition: A corporate action in which a company buys most, if not all, of the target company's ownership stakes in order to assume control of the target firm. Acquisitions are often made as part of a company's growth strategy whereby it is more beneficial to take over an existing firm's operations and niche compared to expanding on its own. Acquisitions are often paid in cash, the acquiring company's stock or a combination of both.

IOT Infrastructure & Energy Services Limited IPO

Turbulent market conditions have forced IOT Infrastructure and Energy Services Limited to rejig the timing of its 800 crore initial public offering (IPO), but the company said it is confident of launching the issue before March.

The firm, which started as a dedicated player in oil tanking services in 1996 as an equal joint venture between Indian Oil Corporation Limited (IOC) and German company Oil Tanking GmBH, is ready with all the required permissions, but is constrained because of the choppy market conditions.

The Company was incorporated as Indian Oil Tanking Limited on August 28, 1996 under the Companies Act, 1956, and later was renamed to IOT Infrastructure & Energy Services Limited on December 1, 2008. The company's registered office is located at 103 Spectra, Hiranandani Business Park, Powai, Mumbai.

Please follow Draft Redherring Prospectus that is submitted to SEBI for more information.

IPO Definition: The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded. In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), the best offering price and the time to bring it to market.

Companies Act, 1956: This is the basic law which governs the creation, continuation, the winding up of companies and also the relationships between the shareholders, the company, the public and the government.